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RICS APC1 > Red Book - Valuation > Flashcards

Red Book - Valuation Flashcards

1
Q

Are the UK sections of the Red Book issued separately to the global sections?

A

Yes

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2
Q

When was the UK Red Book last updated?

A

With effect from 14th January 2019

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3
Q

When was the Red Book Global last updated?

A

31st January 2022

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4
Q

What is the full title of the RED BOOK?

A

RICS Valuation - Global Standard

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5
Q

What where the key changes to the last Red Book update?

A

IVS changes incorporated updated 2 yearly.

Unambiguous TOE when applying exceptions (PS1)

Now clearer (Val is either red book compliant or not)

ESG intricate part of the valuation (VPGA8)

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6
Q

What does IVS Stand for?

A

International Valuation Standards

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7
Q

Which sections of the Red Book are mandatory?

A

PS 1-2
VPS 1-5

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8
Q

What does PS1 relate to?

A

Compliance with standards where a written valuation is provided.

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9
Q

The Red Book applies to what type of valuations?

A

Written valuation advice
AVM-derived output
Oral valuation advice (to the fullest extent possible)

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10
Q

Which Valuations are excepted valuation under PS1?

A

Agency or brokerage advice (not a purchase report)
Acting as an expert witness
Statutory functions
Internal purposes
In the course of negotiations/litigation

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11
Q

Which section(s) of the Red Book do excepted valuations not have to comply with?

A

VPS 1-5

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12
Q

Can an external valuer provide an internal purpose valuation?

A

Yes

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13
Q

What does PS2 relate to?

A

Ethics, competency, objectivity and disclosures.

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14
Q

What do you need to satisfy in order to be competent to provide a valuation?

A
  1. Appropriate academic/professional qualifications
  2. Membership of a professional body, demonstrating a commitment to ethical standards.
  3. Sufficient current local, national and international knowledge of asset type, market, skills and understanding
  4. Compliance with any country, state legal regulations
    governing the right to practice valuation
  5. Where applicable compliance with the RICS Valuer
    Registration (VR) requirements
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15
Q

If you provide preliminary advice or a draft valuation report, what should you state in writing?

A

That your opinion is provisional and subject to completion of the final report

That your advice is provided for the clients internal purposes only

That any draft is on no account to be published or disclosed

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16
Q

What type of valuations may be relied upon by a third party?

A

Published financial statement
Stock exchange, or similar body
Publication prospectus or circular
Investment schemes
Takeovers or mergers

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17
Q

If you have previously valued an asset for any purpose, what additional disclosures must you make?

A

Relationship with the client and previous involvement
Rotation policy
Time as signatory
Proportion of fees

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18
Q

if your firm is too small to have a rotation policy or valuation panel, what else could you do to ensure objectivity?

A

7 yearly (or less) review by another member

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19
Q

Could a conflict of interest exist if you or your firm have been involved with the asset during the last 12 months?

A

Yes

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20
Q

In relation to the proportion of fees additional disclosure, what would a significant amount be considered as?

A

5-25%

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21
Q

What does VPS 1 relate to?

A

Terms of engagement

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22
Q

Do your ToE have to be in writing?

A

Yes

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23
Q

Can the valuation date be different to the report date?

A

Yes

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24
Q

Can you provide a restricted valuation service?

A

Yes - if reasonable with regard to purpose and subject to conditions

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25
Q

What is an assumption?

A

Something that is reasonable to accept as fact without specific investigation or verification.

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26
Q

What is a special assumption?

A

Something that assumes facts that differ from the actual facts existing at the valuation date,

or that would not be made by a typical market participant in a transaction on the valuation date

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27
Q

What does VPS 2 relate to?

A

Inspection, investigations and records

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28
Q

How can you deal with limitations or restrictions on inspection, inquiry or analysis?

A

Record them in the terms of engagement and report

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29
Q

Can you revalue a property without inspecting?

A

Yes - but only if there are no material changes to the physical attributes or location

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30
Q

What does VPS 3 relate to?

A

Valuation reports

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31
Q

What is an internal valuer?

A

A valuer who is employed and conducting a valuation on behalf of their employer for an asset which the employer owns.

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32
Q

What should you do if market conditions change between the valuation date and the date of the report?

A

Comment that values change over time

Draw attention to this

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33
Q

What does VPS 4 relate to?

A

Bases of value, assumptions and special assumptions

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34
Q

What are the 4 bases of value recognised under the Red Book (not wider IVS)?

A

Market Value
Market Rent
Investment Value (worth)
Fair Value

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35
Q

What is market value?

A

The estimated amount for which an asset or liability should. exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing where the parties had each acted knowledgeably, prudently and without compulsion.

36
Q

Should you reflect special value (from a special purchaser) or marriage value in market value?

A

No

37
Q

What is Market Rent?

A

The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had acted knowledgeably, prudently and without compulsion

38
Q

What is investment value (worth)?

A

The value of an asset to a particular owner or prospective owner for individual investment or operational objectives

39
Q

What is fair value?

A

The price that would be received to sell an asset or paid transfer a liability in an orderly transaction between market participants at the measurement date

40
Q

Where does the fair value definition come from?

A

IFRS 13 (International Financial Reporting Standards)

41
Q

is there generally any difference between market value & fair value

A

No

42
Q

When would fair value be used?

A

Financial statement

43
Q

Can you refer to forced sale value

A

No

44
Q

What does VPS 5 relate to?

A

Valuation approaches and method

45
Q

What is the cost approach?

A

Based on the economic principle that a purchaser will pay no more for an asset than the cost to obtain one of equal utility whether by purchase or construction.

46
Q

What is the market approach?

A

Comparing subject asset with identical or similar assets, same or closely similar assets within an appropriate time frame.

47
Q

How do RICS regulate valuation work?

A

Valuer Registration Scheme

48
Q

Do you have to pay to become a Registered Valuer?

A

Yes

49
Q

What does the red book say about inspections?

A

Any limitation or restrictions must be included in the TOE & the report

Any assumptions or special assumptions based on restrictions must be included in the TOE & report

50
Q

What does the red book say about TOE?

A

ToE - should convey a clear understanding of the valuation
requirements and process
- should be expressed in terms that can be read and understood by someone with no prior knowledge of the subject asset

VPS 1 and identified in sections A-R as minimum headings

51
Q

What does the red book say about reporting requirements?

A

Clearly and accurately set out the conclusions of the valuation in a way that is not ambiguous or misleading
and does not create a false impression.

If needed draw attention to any issues affecting the degree of certainty, or uncertainty.

Meet all the agreed TOE

52
Q

What is the hierarchy of rental evidence?

A
  1. New letting
  2. Lease renewal
  3. Rent review
  4. Independent expert
  5. opinion
  6. Arbitration
  7. Asking rents
53
Q

What is the case Hart v Large about?

A

In this case, it was the missed defects, failure to advise further investigations and lack of advice to obtain a PCC that led to the Court assessing damages

The Hart v Large case emphasises the importance for surveyors of:

Being clear and advising clients on the survey level and scope of inspection, limitations and caveats

Recommending justifiable further investigation

Considering whether any new information provided after inspecting or reporting affects their original advice, and updating their advice if it is justified to do so

54
Q

What are the first 5 terms of engagement?

A
  1. Name and status of the valuer
  2. Client
  3. Identification of other intended users
  4. Identification of assets
  5. Valuation currency
55
Q

What are the first 5 minimum inclusions in a red book valuation report?

A
  1. Identification and status of the valuers
  2. Client
  3. Purpose of the valuation
  4. Asset
  5. Basis of value
56
Q

Tell me about a valuation instruction end to end

A
  1. Receive instructions
  2. Conflict and competence check
  3. Issue ToE
  4. Due diligence pre inspection checks
  5. Inspect & measure
  6. Decide appropriate method let say comparable
  7. Research market - comps
  8. Analyse comps
  9. Weight comps - explain & justify
  10. Value property
  11. Draft report
  12. Check by registered valuer and sign off
  13. Issue report
  14. Keep secure records 6 years
57
Q

What does VPGA stand for?

A

Valuation Practice Global Applications

58
Q

What is VPGA 1?

A

Accounts valuations

59
Q

What is VPGA 2?

A

Loan security

60
Q

What is VPGA 4?

A

Profits valuations

61
Q

What is VPGA 8?

A

Real estate valuation

62
Q

What is VPGA 10?

A

Certainty (expanded)

63
Q

What does UK PS1 contain?

A

Compliance with valuation standards, and UK law

64
Q

What does UK VPS 3 contain?

A

Regulated purpose valuations: supplementary requirements

65
Q

Examples of two key UK VPGA?

A

UK VPGA 1 Valuation for financial reporting IFRS and UK GAAP

UK VPGA 10 Valuation for commercial secured lending purposes

66
Q

What is synergistic value, where is the definition provided?

A

Defined in IVS4 as - two or more assets or interest where the combined value is more than the sum of the separate values

67
Q

What is Equitable Value and where is it defined?

A

Defined in IVS4

The estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties

68
Q

What is the red book?

A

Set of global standards which set out procedures, rules and guidance for written valuations

69
Q

Can you summarise the red book?

A

Professional Standard 1 - Compliance
Professional Standard 2- Ethics & conflicts

Valuation Practice Statement 1 - TOE
Valuation Practice Statement 2 - Inspections
Valuation Practice Statement 3 - Reporting
Valuation Practice Statement 4 - Bases of valuation
Valuation Practice Statement 5 - Valuation approach

70
Q

What are implications of shorter residential lease on a property?

A

80 years or less means difficult to mortgage, and the owner would need to be a cash buyer.

Reduces the value as it is less attractive and more difficult to find a buyer.

Can have a new lease under the leasehold reform act once in occupation for 2 years

71
Q

On your valuation of the residential flat for Salix Homes what were the covenants which affected value?

A

Restrictive covenants - preventing major alterations such as removing or moving walls

(also had no businesses, no-sub leases)

72
Q

Can you name some valuations that are carried out for a Statutory Function?

A

Leasehold enfranchisement vals

73
Q

Describe how Departure from the Red Book mandatory requirements may be possible?

A

By stating and agreeing in the TOE, the report and anywhere the report is published

74
Q

What are the bases of value in the red book?

A

Market Value
Market Rent
Investment Value
Fair Value

Bonus = EUV contained within UK VPGA 6

75
Q

What is the difference between a basis of value and a method?

A

Basis = Set of assumptions and special assumptions which determine the approach and method
Method = The steps taken to arrive at a valuation figure

76
Q

What is meant by an arms length transaction?

A

Parties acting in their own self interest

77
Q

What is a Regulated Purpose Valuation?

A

Valuation for financial statements

78
Q

When is Existing Use Value the valuation basis?

A

Used for public body financial accounts

79
Q

What is EUV?

A

Existing use value = Market value disregarding any alternative use

80
Q

Name three situations that can adversely affect the Certainty of valuations?

A
  1. Unusual property features
  2. Potential planning permission
  3. Disruptive market conditions
81
Q

What factors make up the all risks yield?

A

➢ the construction (age, design, specification)
➢ the quality of the tenant’s covenant
➢ the amount of rent (i.e. market-rented, under-rented, over-rented)
➢ the unexpired lease term
➢ the other lease terms
➢ anticipated rental growth (location)

82
Q

What are the five conventional methods of valuation?

A
  1. Comparative
  2. Investment
  3. Residual
  4. Profits / Accounts
  5. Contractor’s / Depreciated Replacement Cost
83
Q

When is the RICS Valuation - Global Standards 2017: UK national supplement effective from

A

14th January 2019

84
Q

What AVM’s are you aware of?

A

Rightmove plus provides a UK model 4 which i have used - operated by valuers with local knowledge and you can make adjustments for property condition and location

85
Q

What is the current effective date for the UK red book supplement?

A

Issued Nov 2018

Effective from Jan 2019

RICS APC1 (18 decks)

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